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Explaining Bank Failures in Brazil: Micro, Macro and Contagion Effects (1994-1998)

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  • Adriana Soares Sales
  • Maria Eduarda Tannuri-Pianto

Abstract

We apply duration (survival) models with exponential hazard and exponential piecewise-constant hazard functions to study the determinants of bank failure over the period 1994 to 1998 in Brazil. The models deal empirically with left censoring in the data. We control for macroeconomic conditions and contagion effects, besides bank-specific factors. Our results indicate that foreign banks have distinct empirical survival functions relatively to other banks. For Brazil, macroeconomic and bank-level covariates explain the likelihood and timing of bank failure. Our indicator of system-wide financial fragility (IFF) suggests that the banking industry faced increased fragility after November 1995. We find evidence that the Program of Incentives to the Restructuring and Strengthening of the National Financial System (Proer) was able to distinguish solvent from insolvent banks.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps147.pdf
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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 147.

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Date of creation: Oct 2007
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Handle: RePEc:bcb:wpaper:147

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Web page: http://www.bcb.gov.br/?english

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  1. Rebel A. Cole & Jeffery W. Gunther, 1993. "Separating the likelihood and timing of bank failure," Financial Industry Studies Working Paper 93-2, Federal Reserve Bank of Dallas.
  2. Liliana Rojas-Suarez, 2001. "Rating Banks in Emerging Markets: What Credit Rating Agencies Should Learn from Financial Indicators," Working Paper Series WP01-6, Peterson Institute for International Economics.
  3. Cysne, Rubens Penha & Costa, Sergio Gustavo Silveira da, 1997. "Effects of the Real Plan on the Brazilian Banking System," Economics Working Papers (Ensaios Economicos da EPGE) 304, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
  4. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
  5. Marcelo Dabos & Walter Sosa Escudero, 2000. "Explaining and Predicting Bank Failure in Argentina Using Duration Models," Working Papers 26, Universidad de San Andres, Departamento de Economia, revised Apr 2000.
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